INTRODUCTION
SGX operates approved exchanges and designated clearing houses under the Securities and Futures Act (the SFA). SGX is obliged by law to meet certain regulatory objectives set out in the SFA. As a demutualised listed company, SGX is obliged to advance its shareholders’ interests through its commercial activities.

The pursuit of profit may, in certain circumstances, be perceived as conflicting with the pursuit of high regulatory standards. However, SGX’s regulatory and commercial objectives are not necessarily opposed. In fact, SGX recognises that high quality regulation sustains an enduring marketplace, which is in the interest of SGX shareholders. The management of Self-Regulatory Organisation (SRO) conflicts is therefore an integral part of SGX’s corporate governance policy. To this end, SGX works closely with, and under the supervision of, the Monetary Authority of Singapore, which is its statutory regulator. This includes public consultations and management of SGX’s rulebooks to ensure that SGX’s regulatory framework remains current and relevant.

CONFLICTS COMMITTEE
The Conflicts Committee, which comprises solely of independent directors, manages the supervision of SGX’s SRO conflicts for the board. The Conflicts Committee is charged with reviewing the adequacy of resources allocated to SGX’s regulatory work, ensuring that adequate systems and processes are in place to manage SRO conflicts and, where necessary, making decisions on specific cases of SRO conflicts referred to it.

This year, the Conflicts Committee has overseen the establishment of comprehensive SRO conflicts governance policies and procedures. The Conflicts Committee has also reviewed SGX’s handling of potential SRO conflict situations, including listing approvals, the fair and objective enforcement of rules and the adequacy of resources within Risk Management & Regulation for conducting its regulatory functions effectively.

APPOINTMENT OF INDEPENDENT CONSULTANT
In June 2006, the Conflicts Committee appointed Mr Robert Nottle, former Chairman of the Securities and Futures Commission of Hong Kong and former director of the Australian Stock Exchange Supervisory Review, to undertake an independent review of SGX’s SRO conflicts management framework. In his report, Mr Nottle concluded that SGX’s overall SRO conflicts management framework, from its organisational structure to funding for regulatory functions, satisfied its obligations as an SRO. He also noted a high degree of observance with the spirit and the letter of SGX’s SRO Conflicts Code. However, he emphasised that SRO conflicts governance was an ongoing obligation and made a number of recommendations for improvement. All the recommendations have been accepted by the board and the management of SGX. The key measures implemented by SGX are described below.

SRO CONFLICTS TRAINING PROGRAMME
SGX’s Regulatory Policy Unit has successfully implemented a comprehensive SRO conflicts training programme. All SGX executive management staff have completed the training, which includes interactive scenario discussions. The training programme continues at staff level, with the objective of increasing awareness of SRO conflicts for all SGX staff. SRO conflicts training has also been incorporated into the induction programme for all new SGX employees.

SRO CONFLICTS CODE AND SRO CONFLICTS HANDBOOK
The SGX SRO Conflicts Code contains the core principles for SRO conflicts governance in SGX. As part of a holistic review of SGX’s SRO conflicts documentation, the Regulatory Policy Unit reviewed the SRO Conflicts Code. To complement the SRO Conflicts Code, the Regulatory Policy Unit also drafted and compiled a comprehensive SRO conflicts handbook.

The handbook was drafted in close collaboration with the relevant regulatory and business units and with feedback from Internal Audit. It is intended to act as a resource for all SGX staff. Together with the SGX SRO conflicts training programme, the handbook provides context and guidance for staff in relation to the application of the SRO Conflicts Code and the unit-level guidelines. The handbook will be continuously updated and expanded as necessary,
to remain relevant.

REVIEW OF REGULATORY KEY PERFORMANCE INDICATORS
The effective management of SRO conflicts requires awareness and endorsement by both regulatory and commercial units in SGX. To this end, SGX has undertaken a thorough review of regulatory key performance indicators (KPIs) in order to capture qualitative regulatory objectives, not only for regulatory units, but also for business units. The establishment of regulatory KPIs across SGX will facilitate the establishment of an organisational culture that values good SRO conflicts governance.

CONCLUSION
SGX’s business is founded on maintaining the trust of all market participants.
Good corporate governance is a critical distinguishing component of SGX’s value proposition.
As part of our corporate governance policy, SGX is committed to managing and resolving SRO conflicts scrupulously.